German Campaign Beginning in Earnest

German Chancellor Merkel begins a 56-stop campaign tour today as she seeks a third term in five-and a half weeks. Her rival, Steinbrueck, who was the finance minister in the Grand Coalition of her first term, has stepped up his own efforts, with little results in the polls.

The latest weekly Forsa poll for Stern magazine and RTL television was published earlier today. Merkel's CDU and Bavarian ally, the CSU, are holding steady at 40%, while Steinbrueck and his Social Democrats are polling 23%. The Greens are drawing support from 13%, while Merkel's coalition partner, the FDP is at 5%, the threshold for parliamentary representation. In Germany garnering high 40% of the popular vote is needed for control of the lower chamber of parliament, the Bundestag.

Although German is rarely governed by a single party, during the campaign season, the parties tend to eschew the possibility of a coalition. Most observers continue to see a grand coalition (CDU and SPD) as the most likely outcome of the Sept 22 election. Steinbrueck has tried to rule it out, but ultimately it will not be his call. The chairman of the SPD (Gabriel) has suggested a party referendum shortly after the election.

The Merkel's center-right coalition has strains. The FDP, for example, has been trounced in most state elections and may not secure sufficient votes for parliamentary representation. It has been bickering with the CSU. The CSU leader and prime minister of Bavaria has thrown down the gauntlet. He has demanded that as a condition of his party's support, a tax on all foreign motorists is imposed.

Note that Bavaria holds its state election a week ahead of the national election, and this may be playing to the CSU's local constituency. However, the proposal has little support by the CDU and FDP. Moreover, some government lawyers reportedly warned that such a tax violates EU legislation.

The center-left could unseat Merkel, but its sectarian tendencies make it unlikely. The SPD and Greens have refuse to consider the Linke (Left) party as a coalition member. The Left's agenda, which is anti-NATO and anti-EU, is antithetical to the more establishment views of the SPD and Greens, but bigger differences have been overcome in the past. The center-left chooses "respectability" over "power".

There is some that talk about the possibility of bringing the Greens into a coalition with the CDU. This is unprecedented on the national level, but has been tried on the state level with limited success. Another configuration that is talked about is for the SPD and Greens to include the FDP in a coalition, but Bruderle, the head of the party has ruled it out. The agendas are at odds, and as noted before, it is not clear that the FDP will secure representation in parliament.

The reason that the German election is important is not just for Germany. Merkel has long depended on the opposition SPD and Greens for support for her European agenda. She has tacked to the center and stole some of the SPD's thunder, in terms of using KfW to lend to other state development banks, such as Spain's. She has introduced a minimum wage of sorts and has pushed for greater subsidies for day care. In addition, there has been a sharp increase in migration to Germany from some southern European countries, such as Spain and Greece.

The combination of the summer holiday season and the German elections seem to have sapped official desires to address a number of important issues such as the need for Greek aid and key decisions on the banking union. In addition, a few weeks after the German election, euro area countries will be submitting 2014 budget and threatens already fragile government, especially in Italy.

The German election is also the third key event in September, leaving aside economic data, such as US monthly employment data. First following the revisions to Q2 GDP, Japan's Prime Minister is expected to decide whether to implement the controversial retails sales tax, that was the final blow that led to the final demise of the previous government, or to mitigate it in some way.

Second, a few days before the German election (Sept 17-18), the Federal Reserve meets and surveys show around 2/3 expect tapering to be announced (though the consensus amount appears to have fallen from $20 bln to $10 bln). In addition to US monetary policy, fiscal policy--debt ceiling and related issues--are also expected to command more attention.

German Campaign Beginning in Earnest
Reviewed by Marc Chandler
on
August 14, 2013
Rating: 5